<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 33-48612
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PROSPECTUS SUPPLEMENT
(To Prospectus Dated July 10, 1992)
$50,000,000
PSI ENERGY, INC.
FIRST MORTGAGE BONDS,
SERIES AAA, 7 1/8%, DUE FEBRUARY 1, 2024
Interest on the First Mortgage Bonds, Series AAA, 7 1/8% (the "Bonds") is
payable semi-annually on February 1 and August 1, beginning August 1, 1994. The
Bonds are not redeemable prior to February 1, 2004. On or after that date, the
Bonds are redeemable, in whole or in part, at any time or from time to time at
the option of the Company as set forth herein. The Bonds are not subject to any
sinking fund or analogous provision. The Bonds will be issued in denominations
of $1,000 and integral multiples thereof. See "Description of Bonds".
The Bonds may be issued in definitive form or may be represented by a permanent
global Bond or Bonds registered in the name of The Depository Trust Company, as
depositary ("DTC" or "Depositary"), or a nominee of the Depositary (each such
Bond represented by a permanent global Bond being referred to herein as a
"Book-Entry Bond"). Beneficial interests in Book-Entry Bonds will only be
evidenced by, and transfers thereof will only be effected through, records
maintained by the Depositary's participants. Except as described under
"Description of Bonds--Book Entry Bonds," owners of beneficial interests in a
permanent global Bond will not be entitled to receive physical delivery of
Bonds in definitive form and will not be considered the holders thereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Bond................................. 98.031% .330% 97.701%
Total.................................... $49,015,500 $165,000 $48,850,500
</TABLE>
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(1) Plus accrued interest from February 1, 1994 to date of delivery.
(2) Before deducting estimated expenses of $90,000, payable by the Company.
The Bonds are offered subject to receipt and acceptance by the Underwriter, to
prior sale and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Bonds in book-entry form will be made through the
facilities of DTC, on or about February 23, 1994.
SALOMON BROTHERS INC
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The date of this Prospectus Supplement is February 16, 1994.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
The following is a summary of certain pertinent facts, and is qualified in
its entirety by detailed information and financial statements appearing in the
documents incorporated by reference in the Prospectus to which this Prospectus
Supplement relates.
THE COMPANY
Company............... PSI Energy, Inc.
Business and Service The Company is an electric utility serving a population
Area................. of approximately 1.9 million people located in 69 of
the 92 counties in Indiana.
THE OFFERING
Amount and Type of
Securities Offered...
$50,000,000 First Mortgage Bonds, Series AAA
Interest Rate......... 7 1/8% per annum
Interest Payment February 1 and August 1, commencing August 1, 1994
Dates................
Maturity Date......... February 1, 2024
Redemption............ The Bonds may not be redeemed prior to February 1,
2004. On or after that date, the Bonds may be redeemed
prior to maturity, in whole or in part, at the option
of the Company at any time as set forth herein. See
"Description of Bonds--General".
Sinking Fund.......... None
Security.............. Secured, together with all other outstanding First
Mortgage Bonds, by a mortgage on substantially all of
the Company's properties.
Use of Proceeds....... To reduce short-term debt incurred to finance
construction.
THE PROPOSED MERGER
Reference is made to the caption "Recent Developments--Merger Agreement with
CG&E" in this Prospectus Supplement for a discussion of the proposed merger of
PSI Resources, Inc., the corporate parent of the Company ("Resources"), into a
Delaware corporation organized to participate in the merger named CINergy Corp.
("CINergy") and the merger of a subsidiary of CINergy into The Cincinnati Gas &
Electric Company ("CG&E"). If such mergers are consummated, the Company and
CG&E will become wholly-owned subsidiaries of CINergy and the Bonds will remain
the sole obligation of the Company. The shareholders of Resources and CG&E have
approved such mergers. Completion of such mergers is contingent on a number of
conditions, including regulatory approvals.
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SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TWELVE MONTHS
YEAR ENDED DECEMBER 31 ENDED
---------------------------------- SEPTEMBER 30,
1988 1989 1990 1991 1992 1993
------ ------ ------ ------ ------ -------------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
Revenues(1)(2)......... $1,099 $1,139 $1,106 $1,120 $1,072 $1,071
Net Income(2)(3)........ 117 138 128 30 107 118
Total Assets............ 2,157 1,971 2,044 2,098 2,304 2,577
Cumulative Preferred
Stock
Not Subject to
Mandatory Redemption.. 124 87 87 87 87 187
Subject to Mandatory
Redemption(4)......... 39 33 29 26 -- --
Long-Term Debt(5)....... 757 665 650 732 777 910
Notes Payable........... 111 8 17 -- 121 24
Common Stock Equity..... 472 559 635 611 655 699
Ratio of Earnings to
Fixed Charges(2)....... 2.4 3.7 4.2 1.5 3.3 3.4
</TABLE>
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(1) Non-firm power transaction sales, recorded as credits to purchased and
exchanged power expenses in periods prior to 1991, have been reclassified
as operating revenues to conform to the 1991 presentation.
(2) In 1991, the Company recorded a pre-tax loss of $135 million ($139 million
including interest accrued in 1992), as a result of the Indiana Supreme
Court's decision to overturn the Indiana Utility Regulatory Commission's
("Indiana Commission") June 1987 order ("June 1987 Order") regarding the
effect on the Company of the July 1, 1987 reduction in the Federal income
tax rate. In April 1993, the Indiana Commission's April 1990 rate order
("April 1990 Order") was remanded to the Indiana Commission by the Indiana
Court of Appeals for further proceedings, including a redetermination of
the cost of equity and its components. In August 1993, the Company entered
into a settlement agreement which resolved the outstanding issues related
to the June 1987 Order and April 1990 Order. As a result of the settlement
agreement, in the second quarter of 1993, the Company reduced the pre-tax
loss related to the June 1987 Order to $119 million and reduced operating
revenues by $31 million for a refund associated with the April 1990 Order.
See "Recent Developments--Regulatory Matters--Settlement Agreement".
(3) In January 1993, the Company received authority from the Indiana Commission
to continue accrual of the debt component of the allowance for funds used
during construction and to defer depreciation expense on its planned
combustion turbine generating units and major environmental compliance
projects from the respective in-service dates until the effective date of
an order in its current retail rate proceeding. See "Recent Developments--
Regulatory Matters--Rate Case".
(4) Includes cumulative preferred stock to be redeemed within one year. In
March 1992, the Company optionally redeemed all of the outstanding
cumulative preferred stock subject to mandatory redemption.
(5) Includes long-term debt due within one year.
S-3
<PAGE>
RECENT DEVELOPMENTS
MERGER AGREEMENT WITH CG&E
General. Resources, the Company, and CG&E entered into an Agreement and Plan
of Reorganization dated as of December 11, 1992, which was subsequently amended
and restated on July 2, 1993, and as of September 10, 1993 (as amended and
restated, the "Merger Agreement"). Under the Merger Agreement, Resources will
be merged (the "Resources Merger") with and into a Delaware corporation named
CINergy Corp. ("CINergy"), organized to participate in the transaction and a
subsidiary of CINergy will be merged with and into CG&E (the "CG&E Merger"; the
Resources Merger and the CG&E Merger are herein collectively referred to as the
"Mergers"). Following the Mergers, CINergy will be the parent holding company
of the Company and CG&E. The outstanding debt securities of the Company,
including the Bonds offered hereby, will remain the obligation of the Company
after the Mergers.
Shareholder and Regulatory Approvals. In November 1993, the Mergers were
approved by the shareholders of Resources and CG&E. In August 1993, the Federal
Energy Regulatory Commission ("FERC") conditionally approved the Mergers. This
conditional approval was made by the FERC without a formal hearing and,
according to public statements by the FERC Commissioners, was done in reliance,
in part, on the FERC's belief that the regulatory commissions of the affected
states would have authority to approve or disapprove the Mergers. The companies
accepted the FERC's conditions and indicated their belief that none of the
conditions would have a material adverse effect on the operations, financial
condition, or business prospects of CINergy. Certain parties petitioned for
rehearing of the FERC's conditional approval. On September 15, 1993, the
Company and CG&E filed a statement with the FERC clarifying their conclusions
at that time that the Mergers would not require any prior approval of a state
commission under state law. Given the issues raised on the requests for
rehearing and the lack of certainty in the record regarding state regulatory
powers, the FERC on January 12, 1994 issued an order withdrawing its prior
conditional approval of the Mergers and initiating a 60-day FERC sponsored
settlement procedure. The settlement procedure is expected to be concluded
prior to the end of March 1994. The FERC has indicated that, if the settlement
procedure is not successful, it intends to issue a further order setting
appropriate issues for hearing.
The companies are currently participating in a collaborative process with
representatives from the Indiana Commission, the Public Utility Commission of
Ohio, the Kentucky Public Service Commission ("KPSC"), various consumer groups,
and other parties to settle all merger-related issues. In conjunction with the
FERC sponsored settlement procedure, on February 11, 1994, the Company filed a
petition with the Indiana Commission requesting approval of various proposals
regarding state regulation after consummation of the Mergers. These proposals
do not address the allocation between shareholders and customers of projected
revenue requirement savings as a result of the Mergers. This allocation will be
the subject of a subsequent Indiana Commission proceeding. Hearings on the
current petition are expected to conclude prior to the end of the 60-day
settlement period established by the FERC. In addition, CG&E had originally
intended to file, in January 1994, an application with the KPSC for approval of
the CG&E Merger. However, given the initiation of the FERC settlement
procedure, CG&E notified the KPSC, and the KPSC agreed, that CG&E would
temporarily defer such filing.
The Mergers are also subject to the approval of the Securities and Exchange
Commission (the "Commission") under the Public Utility Holding Company Act of
1935 (the "1935 Act"). An application requesting such Commission approval is
expected to be filed during the first quarter or early second quarter of 1994.
Upon consummation of the Mergers, CINergy must register as a holding company
under the 1935 Act. The 1935 Act imposes restrictions on the operations of
registered holding companies and their subsidiaries. As a result, the Company
would become subject to regulation by the Commission under the 1935 Act. These
regulations include requirements that securities issuances, sales and
acquisitions of utility assets or of securities of utility companies and
acquisitions of interests in any other business be approved by the Commission.
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The companies' goal is to consummate the Mergers during the third quarter of
1994. However, if the settlement procedure is not successful and a hearing is
convened by the FERC, the Mergers consummation date would likely be further
extended. There can be no assurance that the Mergers will be consummated.
REGULATORY MATTERS
Rate Case. The Company filed testimony with the Indiana Commission in support
of a $103 million, 11.6% retail rate increase. This rate proceeding addresses
the financial and operating requirements of the Company on a "stand-alone"
basis without consideration of the anticipated effects of the Mergers.
Approximately 3.7% of the rate increase is needed to meet new environmental
requirements, 6.6% is primarily needed to meet the Company's growing electric
needs, including construction and operation of one combustion turbine
generating unit and implementation of demand-side management programs, and 1.3%
of the increase is necessary for the recognition of postretirement benefits
other than pensions on an accrual basis. The Company's petition for an increase
in retail rates includes a "performance efficiency plan" which would allow the
Company to retain all earnings up to a 12.5% common equity return and provide
for sharing of common equity returns from 12.5% to 14.5% between shareholders
and ratepayers depending upon the Company's performance on measures of customer
prices, customer satisfaction, customer service reliability, equivalent
availability of its generating units, and employee safety. All earnings above a
14.5% return on common equity would be returned to ratepayers. In addition, the
Company is requesting approval of various ratemaking mechanisms to address
regulatory lag on specific environmental and new resource projects to ensure
that the interests of customers and shareholders are properly aligned. One such
mechanism includes capital costs associated with major environmental compliance
projects and the applicable portion of the Company's clean-coal project in rate
base while the projects are under construction, as permitted by state law, thus
allowing the Company to earn a cash return on these costs prior to the
projects' in-service dates. Hearings are expected to begin in April 1994, and a
final rate order is anticipated in late 1994 or early 1995. The Company cannot
predict what action the Indiana Commission may take with respect to this
proposed rate increase.
Settlement Agreement. In December 1993, the Indiana Commission issued an
order ("December 1993 Order") approving a settlement agreement entered into by
the Company, the appellants, and certain other intervenors which resolved the
outstanding issues related to the appeals of the Indiana Commission's April
1990 Order and June 1987 Order. At issue with respect to the April 1990 Order
was whether the level of return on common equity allowed the Company was
adequately supported by factual findings. The April 1990 Order was on remand
from the Indiana Court of Appeals to the Indiana Commission for further
proceedings, including a redetermination of the cost of equity and its
components. The June 1987 Order, which related to the effect on the Company of
the 1987 reduction in the Federal income tax rate, had been remanded to the
Indiana Commission by the Indiana Supreme Court and was awaiting a final order
from the Indiana Commission. The December 1993 Order provides for the Company
to refund $150 million to its retail customers ($119 million applicable to the
June 1987 Order and $31 million applicable to the April 1990 Order). The
December 1993 Order further provides for the Company to reduce its retail rates
by 1.5% (approximately $13.5 million on an annual basis) to reflect a return on
common equity of 14.25%. The refunds and rate reduction commenced in December
1993.
The Company had previously recognized a loss of $139 million for the June
1987 Order. The difference between the $139 million and the $119 million
portion of the refund applicable to the June 1987 Order is reflected in the
Company's financial statements as a reduction of the loss. The $31 million
portion of the refund applicable to the April 1990 Order is reflected in the
Company's financial statements as a reduction in operating revenues.
ENERGY POLICY ACT
The Energy Policy Act (the "Energy Act") is expected to significantly
increase competition in the wholesale power market. Wholesale power
transactions are power sales between two utilities or between
S-5
<PAGE>
utilities and independent power producers. Competition in the wholesale power
market has been limited due to difficulties in obtaining access to the
transmission systems of utilities that are geographically situated between
potential buyers and sellers. Under the provisions of the Energy Act, the FERC
has the authority to order "wholesale" transmission access if the two parties
involved in the transaction are unable to obtain voluntary access to the
transmission system(s) of third parties in order to complete the sale. The
Energy Act also creates a new class of power providers, exempt wholesale
generators ("EWGs"), which are exempt from certain aspects of the Commission's
public utility holding company regulation. Under the Energy Act, independent
power producers and utility companies can own and operate one or more EWG power
projects without subjecting the companies to the restrictive requirements under
the 1935 Act or without the ownership restrictions of the Public Utility
Regulatory Policies Act. Additionally, to provide opportunities and increase
competition in the global market, EWGs are not restricted from investing in
foreign utilities.
Although the effects of the Energy Act on the industry and the Company cannot
be predicted with certainty, the Company expects increased competition and
downward price pressure in the wholesale power market. The Company expects the
Energy Act to result in a greater number of, and thus more competitive, bids to
supply generation requirements in future years. In the near term, increased
competition will adversely affect the ability of the higher cost wholesale
power producers to maintain their customer base. In particular, cities and
towns who are currently customers of a high-cost utility may be expected to
form municipal utilities and attempt to obtain wholesale power at a lower cost
from other sources. A utility could also be adversely affected if the FERC's
authority to order transmission access requires the utility to upgrade or
increase the capacity of its transmission system to provide the access.
The Company has been operating an open-access transmission system under a
FERC approved tariff since October 1990 and has jointly owned its transmission
system for several years. Consequently, the Company's municipal and cooperative
wholesale customers have already had the opportunity to transmit power from
sources other than the Company, and the Energy Act is not expected to have any
significant effect on sales to those entities. The Company believes its efforts
to sell wholesale power outside the Company's system will be enhanced with
greater access to transmission systems of competing sellers.
An issue to be resolved is the FERC's position with respect to the
consideration of "loop flows" in the pricing of transmission service. That is,
utilities not geographically located between the buyer and seller who
nonetheless experience power flows across their systems may require or demand
compensation which could make some power sales and transmission agreements
uneconomical. The Company will urge the FERC to establish reasonable pricing
policies that preserve the intent of the Energy Act.
LITIGATION
The Company is currently involved in litigation with Exxon Coal USA, Inc. and
Exxon Corporation (Exxon) regarding, among other things, coal quality and
pricing disputes, including whether the price for coal delivered under a coal
supply contract should be $23.266 or $30 per ton. Additionally, Exxon is
seeking $17 million to $63 million in damages for the Company's failure to take
coal after the Company terminated the contract pursuant to a court decision,
which was subsequently reversed. The Company believes the damages, if any, will
be substantially less than $17 million. Exxon has also alleged anticipatory
breach of the contract; however, after reversal of the court decision and
reinstatement of the contract, the Company resumed acceptance of deliveries and
has moved for summary judgement on this issue. At this time, the Company cannot
predict the outcome of this litigation, but no material adverse effect on the
Company's financial condition is expected.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Bonds
will be used to reduce short-term debt incurred to finance construction.
S-6
<PAGE>
DESCRIPTION OF BONDS
The following description of the particular terms of the Bonds offered hereby
supplements the description of the general terms and conditions set forth under
the heading "Description of Debt Securities" in the accompanying Prospectus, to
which description reference is hereby made.
GENERAL
The Bonds offered hereby shall consist of First Mortgage Bonds, Series AAA.
Such Bonds will be issued pursuant to and secured by the indenture of mortgage
or deed of trust dated September 1, 1939, as now or hereafter supplemented and
amended (the "First Mortgage"), between the Company and LaSalle National Bank,
as successor trustee (the "First Mortgage Trustee"). The Bonds constitute a
single series of first mortgage bonds, limited in principal amount to
$50,000,000. The Bonds, together with all other outstanding First Mortgage
Bonds, will be secured by a mortgage on substantially all of the Company's
properties.
The Bonds will mature on February 1, 2024. The Bonds will be issuable only in
fully registered form in denominations of $1,000 and integral multiples of
$1,000 in excess thereof. Bonds may be issued in definitive form or may be
represented by a permanent global Bond or Bonds, registered in the name of the
Depositary or its nominee. See "Book-Entry Bonds" below.
The Bonds are not redeemable prior to February 1, 2004. On or after that
date, the Bonds are redeemable prior to maturity at the option of the Company,
in whole or in part, at any time or from time to time upon at least thirty
days' notice by mail, upon payment of the percentages of the principal amount
thereof set forth in the table below under the heading "Optional Redemption
Price" during the respective twelve months' period beginning February 1 in each
of the years mentioned in such table:
<TABLE>
<CAPTION>
OPTIONAL
BEGINNING REDEMPTION
FEBRUARY 1 PRICE
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<S> <C>
2004.................... 102.58%
2005.................... 102.32%
2006.................... 102.06%
2007.................... 101.80%
2008.................... 101.55%
2009.................... 101.29%
</TABLE>
<TABLE>
<CAPTION>
OPTIONAL
BEGINNING REDEMPTION
FEBRUARY 1 PRICE
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<S> <C>
2010.................... 101.03%
2011.................... 100.77%
2012.................... 100.52%
2013.................... 100.26%
2014 and thereafter..... 100.00%
</TABLE>
together in any case with interest accrued thereon to the redemption date. The
Bonds are not subject to any sinking fund or analogous provision.
Payments of principal of and any premium and interest on the Bonds will be
made at the office or agency of the Company in Plainfield, Indiana or, at the
option of the registered owner thereof, at the office or agency of the Company
in the Borough of Manhattan, The City of New York, except that interest on the
Bonds may be paid, at the option of the Company, by check mailed to the address
of the person entitled thereto. With respect to payments of Book-Entry Bonds at
maturity or, if applicable, upon redemption, see "Book-Entry Bonds" below.
The Bonds, other than Book-Entry Bonds, may be presented for registration of
transfer or exchange at the Corporate Trust Office of the First Mortgage
Trustee or, at the option of the registered owner thereof, at the office or
agency of the Company in the Borough of Manhattan, The City of New York. With
respect to transfers of Book-Entry Bonds and exchanges of permanent global
Bonds representing Book-Entry Bonds, see "Book-Entry Bonds" below.
INTEREST
The Bonds will bear interest at the rate of 7 1/8% per annum, payable semi-
annually on February 1 and August 1 of each year (each an "Interest Payment
Date"), commencing on August 1, 1994. Except as
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<PAGE>
hereinafter set forth, each Bond will bear interest from and including its date
of issuance or from and including the most recent Interest Payment Date with
respect to which interest on such Bond (or any predecessor Bond) has been paid
or duly made available for payment at the fixed rate per annum until the
principal thereof is paid or made available for payment. Interest will be
payable on each Interest Payment Date and at maturity or, if applicable, on
redemption. Each payment of interest payable at maturity, or, if applicable,
upon redemption shall include interest accrued to, but excluding, the date of
maturity or redemption. Interest will be payable generally to the person
(which, in the case of a permanent global Bond representing Book-Entry Bonds,
shall be the Depositary) in whose name a Bond (or any predecessor Bond) is
registered at the close of business on the record date next preceding each
Interest Payment Date; provided, however, that interest payable at maturity or,
if applicable, on redemption, will be payable to the person (which, in the case
of a permanent global Bond representing Book-Entry Bonds, shall be the
Depositary or its nominee) to whom principal shall be payable. With respect to
payments of interest on Book-Entry Bonds, see "Book-Entry Bonds" below.
BOOK-ENTRY BONDS
Upon issuance, all Book-Entry Bonds will be represented by a single permanent
global Bond. Each permanent global Bond representing Book-Entry Bonds will be
deposited with, or on behalf of, the Depositary and registered in the name of
the Depositary or its nominee. Book-Entry Bonds will not be exchangeable for
Bonds in definitive form ("Definitive Bonds") at the option of the holder and,
except as set forth below, will not otherwise be issuable in definitive form.
DTC will be the Depositary.
DTC has advised the Company and the Underwriter as follows: DTC is a limited-
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. "Direct
Participants" include securities brokers and dealers (including the
Underwriter), banks, and trust companies, clearing corporations, and certain
other organizations. Access to the DTC system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Bonds under the DTC system must be made by or through
Direct Participants. Upon the issuance by the Company of Book-Entry Bonds
represented by a permanent global Bond, the Depositary will credit, on its
book-entry system, the respective principal amounts of the Book-Entry Bonds
represented by such permanent global Bonds to the accounts of Participants. The
accounts to be credited shall be designated by the Underwriter of such Book-
Entry Bonds. The ownership interest of each actual purchaser of each Bond (a
"Beneficial Owner") will be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will receive written confirmations providing details
of the transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which the Beneficial Owner entered into
the transaction. Transfers of ownership interests in the Bonds are expected to
be effected by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Bonds, except as set forth below. To facilitate
subsequent transfers, all Bonds deposited by Participants with DTC will be
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Bonds with DTC and their registration in the name of Cede & Co. will not effect
any changes in beneficial ownership. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in Book-Entry Bonds represented by a permanent global Bond.
S-8
<PAGE>
So long as the Depositary for a permanent global Bond, or its nominee, is the
registered owner of such permanent global Bond, the Depositary or its nominee,
as the case may be, will be considered the sole owner or holder of the Book-
Entry Bonds represented by such permanent global Bonds for all purposes under
the First Mortgage. Except as provided below, owners of beneficial interests in
Book-Entry Bonds represented by a permanent global Bond will not be entitled to
have Book-Entry Bonds represented by such permanent global Bond registered in
their names, will not receive or be entitled to receive physical delivery of
Book-Entry Bonds in definitive form and will not be considered the owners or
holders thereof under the First Mortgage. Unless and until it is exchanged in
whole or in part for Definitive Bonds evidencing the Book-Entry Bonds
represented thereby, a permanent global Bond may not be transferred except as a
whole by the Depositary for such permanent global Bond to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor.
The Company expects that conveyance of notices and other communications by
DTC to Direct Participants, by Direct Participants to Indirect Participants,
and by Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. In addition, neither DTC
nor Cede & Co. will consent or vote with respect to Bonds. The Company has been
advised that DTC's usual procedure is to mail an omnibus proxy to the Company
as soon as possible after the record date with respect to such consent or vote.
The omnibus proxy would assign Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Bonds are credited on such
record date (identified in a listing attached to the omnibus proxy).
Payments of principal and interest, if any, on the Book-Entry Bonds
represented by a permanent global Bond registered in the name of the Depositary
or its nominee will be made to the Depositary or its nominee, as the case may
be, as the registered owner of such permanent global Bond. None of the Company,
the Trustee, any agent of the Company or First Mortgage Trustee or the
registrar for the Bonds will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in a permanent global Bond or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
The Company has been advised that DTC will credit the accounts of Direct
Participants with payment in amounts proportionate to their respective holdings
in principal amount of interest in any permanent global Bond as shown on the
records of DTC. The Company has been advised that DTC's practice is to credit
Direct Participants' accounts on the applicable payment date unless DTC has
reason to believe that it will not receive payment on such date. The Company
expects that payments by Participants to Beneficial Owners will be governed by
standing customer instructions and customary practices, as is now the case with
securities held for the accounts of customers. Such payments will be the
responsibility of such Participants.
If the Depositary with respect to any permanent global Bond is at any time
unwilling or unable to continue as Depositary and a successor Depositary is not
appointed by the Company within 90 days, the Company will issue Definitive
Bonds in exchange for the Book-Entry Bonds represented by such permanent global
Bond. In addition, the Company may at any time and in its sole discretion
determine not to use the Depositary's book-entry system, and, in such event,
will issue Definitive Bonds in exchange for the Book-Entry Bonds represented by
such permanent global Bond.
S-9
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
the Company has agreed to sell to Salomon Brothers Inc, and such Underwriter
has agreed to purchase, the entire principal amount of Bonds offered hereby.
Under the terms and conditions of the Underwriting Agreement, the Underwriter
is committed to take and pay for all of the Bonds, if any are taken.
The Underwriter proposes to offer the Bonds in part directly to the public at
the initial public offering price set forth on the cover page of this
Prospectus Supplement, and in part to certain securities dealers at such price
less a concession of .250% of the principal amount of the Bonds. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of .125% of the principal amount of the Bonds to certain brokers and dealers.
After the Bonds are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Company has not applied for listing of the Bonds on any securities
exchange. The Company has been advised by the Underwriter that it currently
intends to make a market in the Bonds but is not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the development or the liquidity of the trading market for the Bonds.
LEGAL OPINIONS
The legality of the Bonds will be passed upon for the Company by Frank T.
Lewis, Esq., Associate General Counsel of the Company, and for the Underwriter
by Sidley & Austin, Chicago, Illinois. Sidley & Austin has represented the
Company, from time to time, in connection with certain pending litigation and
other matters.
S-10
<PAGE>
$545,000,000
PSI ENERGY, INC.
DEBT SECURITIES
DUE FROM 9 MONTHS TO 35 YEARS FROM DATE OF ISSUE
----------------
PSI Energy, Inc. (the "Company") may from time to time offer up to
$545,000,000 aggregate principal amount of its Debt Securities (the "Debt
Securities"), consisting of one or more series of its first mortgage bonds (the
"Bonds") and one or more series of its notes secured by a collateral series of
first mortgage bonds (the "Secured Notes"). The Debt Securities may be offered
with maturities ranging from 9 months to 35 years from the date of issue and in
amounts, at prices and on terms to be determined at the time of sale. The
accompanying Prospectus Supplement (the "Prospectus Supplement") sets forth
with regard to the series of Debt Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") the specific
designation, aggregate principal amount, maturity or maturities, interest rate
or rates (which may be fixed or, in the case of Secured Notes, variable),
interest payment dates, if any, any terms for redemption at the option of the
Company or the holder, any sinking fund provisions, any listing on a securities
exchange, the initial public offering price or prices and any other special
terms in connection with the offering and sale of such Offered Securities.
The Debt Securities may be issued in registered form, in bearer form with
coupons attached or both. In addition, all or a portion of the Debt Securities
of any series may be issuable in the form of a global security which will be
exchangeable only under certain conditions into definitive Debt Securities. See
"Description of Debt Securities--Global Securities."
The Company may sell Debt Securities to or through underwriters, and also may
sell Debt Securities to other purchasers directly or through agents. The
accompanying Prospectus Supplement sets forth the names of any underwriters or
agents involved in the sale of the Debt Securities, the principal amounts, if
any, to be purchased by underwriters and the compensation of such underwriters
or agents.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Prospectus is July 10, 1992.
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY SUCH PERSON. NEITHER THIS PROSPECTUS NOR ANY
PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE OFFERED SECURITIES OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY THEREOF TO ANY PERSON OR IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE.
----------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Debt Securities.
This Prospectus does not contain all the information set forth in such
registration statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Debt Securities, reference is made to such
registration statement, which may be inspected at the offices of the Commission
at the address indicated below. Each statement made in this Prospectus
referring to a document which has been or may be filed as an exhibit to such
registration statement is qualified by reference to the complete text of such
document.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports and
other information filed with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D. C. 20549 and at its regional offices located
at 500 West Madison Street, Chicago, Illinois 60661 and 75 Park Place, New
York, New York 10007. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N. W.,
Washington, D.C. 20549 at prescribed rates. In addition, reports and other
information concerning the Company may be inspected at the office of the New
York Stock Exchange, 20 Broad Street, New York, New York, the exchange on which
certain of the Company's securities are listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference and made a part hereof:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992; and
(c) The Company's Current Report on Form 8-K dated May 26, 1992.
All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold, or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
2
<PAGE>
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner of Debt Securities, to whom a copy of this
Prospectus has been delivered, on the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated in this Prospectus by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests should be
directed to PSI Energy, Inc., Investor Relations, 1000 East Main Street,
Plainfield, Indiana 46168, telephone number (317) 839-9611.
THE COMPANY
The Company is an Indiana corporation engaged in the production,
transmission, distribution and sale of electric energy in north central,
central and southern Indiana. It serves areas located in 69 of the 92 counties
in Indiana having an estimated population of 1.9 million, including the cities
of Terre Haute, Kokomo, Columbus, Lafayette, Bloomington and New Albany. The
corporate offices of the Company are located at 1000 East Main Street,
Plainfield, Indiana 46168, and its telephone number is (317) 839-9611. The
Company is a wholly-owned subsidiary of PSI Resources, Inc.
The Company is a public utility under the laws of Indiana, and is regulated
by the Indiana Utility Regulatory Commission ("Indiana Commission") as to its
retail rates, services, accounts, depreciation, issuance of securities,
acquisitions and sales of utility properties, and in other respects as provided
by Indiana law. The Company is also subject to regulation by the Federal Energy
Regulatory Commission ("FERC") with respect to borrowings and the issuance of
securities not regulated by the Indiana Commission, the classification of
accounts, rates to wholesale customers, interconnection agreements, and
acquisitions and sales of certain utility properties as provided by Federal
law.
The Company operates six steam electric generating stations, one
hydroelectric generating station and fifteen rapid-start internal combustion
generation units, all within the State of Indiana. The Company owns all of the
above, except for 49.95% of Gibson Unit 5 which is jointly owned by Wabash
Valley Power Association, Inc. ("WVPA") (25%) and Indiana Municipal Power
Agency ("IMPA") (24.95%). Company-owned system generating capability as of
December 31, 1991, was 5,687 megawatts ("MW"). Substantially all of the
Company's electric utility plant is subject to a first mortgage lien. See
"Description of Debt Securities--Description of First Mortgage and the Bonds."
Additionally, in 1991, the Company filed requests with the Indiana Commission
to issue "certificates of need" for the construction of two 100 MW combustion
turbine generating units at its Cayuga Generating Station, and for the
construction of a 265 MW clean-coal power generating facility at its Wabash
River Generating Station, which will be a joint project between the Company and
Destec Energy. See "Recent Developments--Capital Needs--New Generation."
For the 12 months ended December 31, 1991, 99% of the Company's electrical
power production was obtained from coal-fired generation and 1% from
hydroelectric generation. The Company has both long- and short-term coal supply
agreements which are subject to price revision, including several with
extension options, to supply the major portion of the coal requirements for its
generating stations from mines located principally in Indiana and Illinois. The
Company monitors alternative sources to assure a continuing availability of
economical fuel supplies. See "Recent Developments--Litigation."
The area served by the Company is a residential, agricultural and widely
diversified industrial territory. Approximately 98% of the Company's operating
revenues are derived from sales of electricity. As of December 31, 1991, the
Company supplied electric service to 602,975 customers in approximately 700
cities, towns, unincorporated communities and adjacent rural areas, including
municipal utilities and rural electric cooperatives. No one customer accounts
for more than five percent of electric operating revenues. Sales of electricity
by the Company are affected by the various seasonal patterns throughout the
year and, therefore, its operating revenues and associated operating expenses
are not generated evenly during the year.
3
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------- QUARTER ENDED
1987 1988 1989 1990 1991 MARCH 31, 1992
------ ------ ------ ------ ------ --------------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues(1)(2)..... $1,151 $1,099 $1,139 $1,106 $1,120 $ 272
Income before extraordinary
gain and cumulative effect
of change in accounting
principle................... 145 117 138 128 30 28
Net Income(1)(3)(4).......... 240 117 138 128 30 28
Total Assets................. 2,207 2,157 1,971 2,044 2,098 2,119
Cumulative Preferred Stock
Not Subject to Mandatory
Redemption................. 128 124 87 87 87 87
Subject to Mandatory
Redemption(5).............. 45 39 33 29 26 --
Long-term debt(6)............ 922 757 665 650 732 660
Notes payable................ 159 111 8 17 -- 84
Common Stock Equity.......... 355 472 559 635 611 622
Ratio of Earnings to Fixed
Charges(3).................. 3.4 2.4 3.7 4.2 1.5 3.3
</TABLE>
- --------
(1) Prior to January 1987, the Company recorded revenues as billed to its
customers on a cycle billing basis. To more closely match revenues with
expenses, the Company changed its method of accounting beginning in 1987
and records revenues in each period for energy delivered during the period.
The cumulative effect at January 1, 1987, of this change in accounting was
$42 million.
(2) Non-firm power transaction sales, recorded as credits to purchased and
exchanged power expenses in periods prior to 1991 have been reclassified as
operating revenues to conform to the 1991 presentation.
(3) In 1991, the Company recorded a pre-tax loss of $135 million, including
interest through December, 1991, as a result of the Indiana Supreme Court's
decision to overturn the Indiana Commission's June 1987 order regarding the
effect on the Company of the July 1, 1987, reduction in the Federal income
tax rate.
(4) In 1987, the Company paid $115 million in settlement of litigation related
to a nuclear fuel contract. The discounted value of the contractual amount
had previously been included in the write-off of Marble Hill costs. As a
result of the settlement, the Company reported an extraordinary gain of $52
million after deducting applicable income tax effects of $11 million.
(5) Includes $3 million in 1991, 1990, 1989, 1988 and 1987 to be redeemed
within one year. On March 2, 1992, the Company optionally redeemed all of
the outstanding preferred shares subject to mandatory redemption.
(6) Includes long-term debt due within one year of $90 million at March 31,
1992 and December 31, 1991, $39 million at December 31, 1989, $37 million
at December 31, 1988 and $278 million at December 31, 1987.
See Item 7 of the Company's 1991 Annual Report on Form 10-K for a discussion
of material uncertainties.
RECENT DEVELOPMENTS
CAPITAL NEEDS
Environmental
In April 1992, the Company filed with the Indiana Commission its plan to
comply with Phase I of the Clean Air Act Amendments of 1990 ("Clean Air Act").
The plan consists of constructing a sulfur dioxide scrubber for Unit 4 at
Gibson Generating Station and modifying other generating units to provide for
the use of lower-sulfur coal. For Phase I, the Company does not plan to depend
upon the purchase or sale of emission allowances created under the Clean Air
Act. The filing, pursuant to a state law enacted in 1991, allows the Company to
seek pre-approval of its compliance plan. The Company has also requested
authorization to defer certain costs required to implement its compliance plan.
The Indiana Commission is expected to rule on this plan in late 1992 or early
1993.
4
<PAGE>
New Generation
On May 13, 1992, the Indiana Commission issued a "certificates of need" order
for the construction of two 100 MW combustion turbine generating units with the
first unit scheduled to be in-service by mid-1993 and the second unit in 1994
at an estimated total cost of $100 million.
CAPITAL RESOURCES
The Company is currently projecting the cost of complying with Phase I and
Phase II of the Clean Air Act to be $1.2 billion over the 1992-2000 period.
Rate increases attributable to compliance with Phase I of the Clean Air Act
(through 1995) are expected to be 7-8 percent. The preliminary Phase II plan
indicates that rate increases between 1996 and 2000 for environmental
compliance costs could be in the range of 8-10 percent.
In April 1992, the Company filed a petition with the Indiana Commission
seeking authority to issue up to $650 million in long-term debt securities with
the option of issuing up to $200 million of preferred stock in lieu of an equal
amount of long-term debt. In addition, the Company has petitioned the Indiana
Commission for authority to increase its short-term credit arrangements from
$100 million to $200 million. The Company expects the Indiana Commission to
issue orders in response to these petitions in the third quarter of 1992.
LITIGATION
On May 13, 1992, the Company filed a lawsuit for a declaratory judgement in
the U.S. District Court for the Southern District of Indiana against Exxon
Coal. The Company requested the court to determine (a) if an offer to supply
coal from a competing coal company is valid and (b) if Exxon fails to match
such offer under a reopener provision to renegotiate the price under an
existing agreement, such contract will terminate in December 1992, or at the
Company's election, at the end of the temporary continuance of deliveries by
Exxon as provided in the agreement.
On May 26, 1992, the Court of Appeals of Indiana ("Court of Appeals") issued
an opinion holding that the Indiana Commission erred by not conducting a formal
hearing with respect to the 1988 formation of the Company's holding company,
PSI Holdings, Inc., now PSI Resources, Inc. The Court of Appeals determined
that the exchange of the common stock of the Company for holding company common
stock required approval, after a hearing, by the Indiana Commission. The
Company may further appeal the decision or may petition the Indiana Commission
for an order approving the formation of the holding company. The Company cannot
predict the outcome but believes the formation of the holding company will be
ultimately upheld.
USE OF PROCEEDS
Except as otherwise provided in the Prospectus Supplement, the net proceeds
to be received by the Company from the sale of Debt Securities will be used for
general corporate purposes, including approximately $370.7 million for
construction financing, $84.3 million for the payment at maturity of
outstanding short-term notes payable, $40 million for the payment at maturity
of the Company's Series SS First Mortgage Bonds, 10%, due September 15, 1993
and $50 million for the payment at maturity of the Company's Series RR First
Mortgage Bonds, 9 3/4%, due August 1, 1996. The interest rates applicable to
such short-term notes are reset periodically and ranged from 4.09% to 4.38% per
annum on June 1, 1992.
DESCRIPTION OF DEBT SECURITIES
GENERAL.
The Debt Securities may consist of one or more series of Bonds and one or
more series of Secured Notes. Any such Bonds will be issued pursuant to and
secured by the indenture of mortgage or deed of trust dated September 1, 1939,
as now or hereafter supplemented and amended (the "First Mortgage"), between
the Company and LaSalle National Bank, as successor trustee (the "First
Mortgage Trustee"). Any such Secured Notes will be issued pursuant to the
indenture dated as of July 15, 1992 (the "Note Indenture") between the Company
and The First National Bank of Chicago, as trustee (the "Note Trustee"), and
will be secured by one or more First Mortgage Bonds, Series WW, Due August 15,
2027 (the "Collateral Bonds"), to be issued by the Company pursuant to the
First Mortgage and pledged to the Note Trustee.
5
<PAGE>
Included in this Prospectus are descriptions of the First Mortgage, the Note
Indenture, the Bonds and the Secured Notes. Such descriptions are brief
summaries of the provisions referred to and do not purport to be complete. The
respective forms of the First Mortgage and the Note Indenture are filed as
exhibits to the Registration Statement of which this Prospectus is a part, and
reference is made thereto for the definitive provisions of such documents. The
descriptions herein are qualified in their entirety by such reference. Certain
capitalized terms used herein shall have the meanings respectively set forth in
the First Mortgage and the Note Indenture.
Subject to the limitations contained herein, the Prospectus Supplement will
set forth the following terms relating to the Offered Securities: (1) the
specific designation of the Offered Securities and whether the Offered
Securities constitute Secured Notes or Bonds; (2) any limit on the aggregate
principal amount of the Offered Securities; (3) the date or dates, if any, on
which the Offered Securities will mature; (4) the rate or rates per annum
(which may be fixed or, in the case of Secured Notes, variable) at which the
Offered Securities will bear interest, if any, the date or dates on which any
such interest will be payable and the Record Dates for any interest payable on
the Offered Securities which are Registered Securities; (5) any mandatory or
optional redemption or sinking fund provisions, including the period or periods
within which, the price or prices at which and the terms and conditions upon
which the Offered Securities may be redeemed or purchased at the option of the
Company or otherwise; (6) whether the Offered Securities will be issuable in
registered form or bearer form or both, and, if issuable in bearer form, the
restrictions as to the offer, sale and delivery of the Offered Securities in
bearer form and as to exchanges between registered and bearer form; (7) whether
the Offered Securities will be issuable in the form of one or more temporary or
permanent Global Securities and, if so, the identity of the Depositary for such
Global Securities; (8) each office or agency where the principal of and any
premium and interest on the Offered Securities will be payable, and each office
or agency where the Offered Securities may be presented for registration of
transfer or exchange; (9) any applicable United States Federal income tax
consequences, including whether and under what circumstances the Company will
pay additional amounts with respect to the Offered Securities to a non-United
States Person (as defined in such Prospectus Supplement) on account of any tax,
assessment or governmental charge withheld or deducted and, if so, whether the
Company will have the option to redeem such Offered Securities rather than pay
such additional amounts; and (10) any other terms of the Offered Securities not
inconsistent with the First Mortgage or the Note Indenture, as the case may be,
including covenants and events of default relating solely to the Offered
Securities. Offered Securities may be issued bearing no interest or interest at
a rate below the prevailing market rate at the time of issuance, to be offered
and sold at a discount below their stated principal amount. United States
Federal income tax consequences and other special considerations applicable
thereto or to other Offered Securities offered and sold at par which are
treated as having been issued at a discount for United States Federal income
tax purposes will be described in the Prospectus Supplement relating thereto.
Except to the extent described under "Description of the First Mortgage and
the Bonds--Issue of Additional First Mortgage Bonds" below, there are no
covenants or provisions in either the Note Indenture or the First Mortgage to
protect debt holders from highly leveraged transactions or from a leveraged
buyout by management or any other party or entity. A leveraged buyout initiated
or supported by management would be treated no differently from any other
highly leveraged transaction.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of a global
security which is deposited with and registered in the name of the depositary
(or a nominee of the depositary) specified in the accompanying Prospectus
Supplement. So long as the depositary for a global security, or its nominee, is
the registered owner of the global security, the depositary or its nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such global security for all purposes under the
Indenture. Except as provided in the Note Indenture, owners of beneficial
interests in Debt Securities represented by a global security will not (a) be
entitled to have such Debt Securities registered in their names, (b) receive or
be entitled to receive physical delivery of certificates representing such Debt
Securities in definitive form, (c) be considered the owners or holders thereof
under the Note Indenture and (d) have any rights under the
6
<PAGE>
Indenture with respect to such global security. Unless and until it is
exchanged in whole or in part for individual certificates evidencing the Debt
Securities represented thereby, a global security may not be transferred except
as a whole by the depositary for such global security to a nominee of such
depositary or by a nominee of such depositary to such depositary or another
nominee of such depositary or by the depositary or any nominee to a successor
depositary or any nominee of such successor. The Company, in its sole
discretion, may at any time determine that any series of Debt Securities issued
or issuable in the form of a global security shall no longer be represented by
such global security and such global security shall be exchanged for securities
in definitive form pursuant to the Note Indenture.
Upon the issuance of a global security, the depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts
of such global security to the accounts of participants. Ownership of interests
in a global security will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the depositary (with respect to
interests of participants in the depositary), or by participants in the
depositary or persons that may hold interests through such participants (with
respect to persons other than participants in the depositary). Ownership of
beneficial interests in a global security will be limited to participants or
persons that hold interests through participants.
DESCRIPTION OF THE FIRST MORTGAGE AND THE BONDS.
General. Each series of Bonds shall be a new series of first mortgage bonds
issued under and secured by the First Mortgage. The Bonds shall mature on a
date not more than 35 years after the date of issuance. The Bonds will be
delivered only as registered bonds without coupons in denominations of $1,000
and any multiple thereof. A brief description of the First Mortgage follows.
Transfer of Bonds. Bonds may be presented for registration of transfer at the
offices and subject to the restrictions set forth therein and in the applicable
Prospectus Supplement without service charge, but upon payment of any taxes or
other governmental charges due in connection therewith, subject to any
applicable limitations contained in the First Mortgage. Bonds are issuable in
fully registered form only.
Maintenance and Renewal. The First Mortgage provides that during each
calendar year, so long as any bonds shall be outstanding thereunder, the
Company shall expend sums equal to the greater of (a) 15% of the gross
operating revenues (which, as defined in the First Mortgage, excludes revenues
received after January 1, 1976 which are attributable to increases in the unit
cost of fuel over the average unit cost of fuel used in 1975) of the Company
for such calendar year or (b) 2.25% of the depreciable property of the Company
on January 1 of such year for (i) the maintenance and repair of the mortgaged
properties, (ii) the construction or acquisition of bondable property, or (iii)
the retirement of bonds issued under the First Mortgage; that the Company shall
deposit annually with the First Mortgage Trustee cash to the extent that such
aggregate amount is not so expended, less any credits for excess expenditures
for such purposes in prior years; that any cash so deposited may be withdrawn
by the Company or applied by the First Mortgage Trustee as provided in the
First Mortgage (including the redemption at the optional redemption price of
bonds which are then redeemable at the option of the Company); that excess
expenditures may be used to comply with the requirements of any subsequent year
or years; and that gross expenditures (as defined and limited in the First
Mortgage) for bondable property may be certified to comply with the provisions
of the foregoing clause (ii). Expenditures so used, and bonds retired through
expenditures so used, cannot be used for other purposes under the First
Mortgage; and expenditures used or bonds retired for other purposes under the
First Mortgage cannot be used for the purpose of complying with said
maintenance and renewal provisions. The First Mortgage does not require that
any notice be given to bondholders in connection with such maintenance and
renewal requirements, unless and until an event of default under the First
Mortgage occurs by reason of the Company's failure to meet such requirements.
The maintenance and renewal provisions of the First Mortgage do not require the
retirement annually of any specific amount of outstanding first mortgage bonds.
The First Mortgage also provides that the Company will maintain the mortgaged
properties in good repair and working order and contains provisions for
inspection of the mortgaged property and report of its condition.
7
<PAGE>
Security. The Bonds will rank pari passu, except as to any sinking fund or
similar fund provided for a particular series of bonds, with all bonds now or
hereafter issued and outstanding under the First Mortgage. The First Mortgage
constitutes a first mortgage lien, subject only to permitted liens (as defined
in the First Mortgage), on all or substantially all the permanent fixed
properties of the Company, except properties specifically excepted or excluded,
and except certain properties in service which at December 31, 1991 had an
aggregate estimated book cost of approximately $2,000,000 and are subject to
certain defects or encumbrances. All permanent fixed property, other than
property of the character excluded by the First Mortgage from its lien,
hereinafter acquired by the Company will, upon acquisition, become subject to
such lien, subject to permitted liens and to any liens existing or placed
thereon upon acquisition.
Issue of Additional First Mortgage Bonds. Additional bonds of any series may,
without limitation as to aggregate principal amount and in the manner and
subject to the limitations, conditions and restrictions contained in the First
Mortgage, be issued under the First Mortgage from time to time on any one or
more of the following bases:
1. For or on account of the "retirement" (as defined in the First
Mortgage) of an equal principal amount of bonds of any one or more other
series theretofore authenticated under the First Mortgage; but the Company
has covenanted in the First Mortgage that so long as any bonds issued
thereunder remain outstanding, bonds issued for or on account of such
"retirement" shall be issued only in respect of bonds issued under the
First Mortgage after August 31, 1945.
2. In principal amount not greater than 60% of "net expenditures" (as
defined in the First Mortgage) made by the Company (after September 26,
1945, in case of bonds issued on or after January 1, 1949) for the
construction or acquisition of "bondable property" (which, as defined in
the First Mortgage, includes construction work in progress to the extent
actually constructed or erected) which has become subject to the lien of
the First Mortgage and is not subject to any lien or mortgage equal or
prior in lien to the First Mortgage, except "permitted liens" (as defined
in the First Mortgage) and any lien or mortgage securing obligations for
the payment or redemption of which the necessary funds shall have been
deposited irrevocably in trust with instructions to apply such funds to the
payment or redemption of such obligations.
3. To an aggregate principal amount of bonds equal to the amount of cash
deposited with the First Mortgage Trustee under the First Mortgage, which
cash, designated as "deposited cash," may be applied to the redemption or
purchase of bonds of any series issued under the First Mortgage or may be
withdrawn by the Company to an amount equal to the principal amounts of any
bonds which could be authenticated for the purposes and under the
conditions stated in 1 and 2 above.
No additional bonds may be authenticated for or on account of "net
expenditures" for "bondable property" or for "deposited cash", and no
additional bonds bearing a higher rate of interest than the bonds for or on
account of the "retirement" of which they are issued, shall be authenticated
more than five years prior to the stated maturity of the bonds for or on
account of the "retirement" of which they are issued, unless "net earnings"
requirements (i.e., net earnings for the twelve months ended prior to such
issuance must be two times the interest on all bonds outstanding after giving
effect to such issuance) are satisfied. For purposes of the First Mortgage, the
"net earnings" of the Company for any period shall mean an amount, computed in
accordance with accepted principles of accounting, determined by deducting from
the total gross earnings and income of the Company derived from all sources for
such period all operating expenses of the Company for such period, the
remainder being adjusted, if necessary, so that not more than ten per centum
(10%) thereof shall consist of the aggregate of (a) net non-operating income,
(b) net operating revenues derived from the operation by the Company of any
properties other than electric, gas or water properties, and (c) net earnings
from any properties not owned by the Company.
The Collateral Bonds and any Bonds will be issued pursuant to clause 1 above
on account of the "retirement" of bonds issued under the First Mortgage and
accordingly the net earnings test is not applicable to the issuance of the
Collateral Bonds or any such Bonds.
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Acquisition of Property Subject to Prior Lien. The First Mortgage provides
that after having acquired properties, other than the properties acquired on
April 9, 1941 from Dresser Power Corporation, of a value in the aggregate of
$500,000, without regard to the limitations referred to in this paragraph, the
Company will not, so long as any bonds are outstanding under the First
Mortgage, acquire any properties which at the time of the acquisition thereof
are subject to a lien or liens equal or prior to the lien of the First Mortgage
(other than "permitted liens") if at the date of such acquisition the debt
secured by such liens shall exceed 60% of the "value" of "bondable property" so
acquired, or if the "net earnings" of such property for twelve consecutive
months ending within 90 days next preceding the date of acquisition, shall have
been less than two times the interest charges for one year on all outstanding
obligations secured by such lien at the time of such acquisition, except
obligations for the payment or redemption of which the necessary funds have
been deposited irrevocably in trust with instructions to apply such funds to
the payment or redemption of such obligations. The First Mortgage further
provides that upon the acquisition of any property subject to a lien or liens
equal or prior to the lien of the First Mortgage, the Company will cause all
such mortgages then existing on such property to be closed and, after such
acquisition, will permit no additional bonds to be issued thereunder.
Modification of First Mortgage. In general, modifications or alterations of
the First Mortgage, and of the rights or obligations of the Company and of the
bondholders, as well as waivers of compliance with the First Mortgage, may with
the approval of the Board of Directors of the Company be made at bondholders'
meetings with the affirmative vote of 75% of the bonds entitled to vote at the
meeting with respect to matters involved; provided, however, that no
modification or alteration may be made which will permit (1) the extension of
the time or times of payment of the principal of, or the interest or the
premium (if any) on, any bond, or the reduction in the principal amount thereof
or in the rate of interest or the amount of any premium thereon, or any other
modification in terms of payment of such principal, interest or premium, which
terms shall always be unconditional, or (2) the creation of any lien ranking
prior to or on a parity with the lien of the First Mortgage with respect to any
of the mortgaged properties, or (3) the depriving of any bondholder of a lien
upon the mortgaged properties, or (4) the reduction of the percentage of bonds
required for the taking of action with respect to any such modification or
alteration.
Dividend Restrictions. The First Mortgage provides that, so long as any bonds
shall be outstanding under the First Mortgage, the Company shall not declare or
pay any dividends or make any distributions on shares of any class of its
capital stock (other than on preferred stock or dividends payable in shares of
its Common Stock or dividends which are applied to the purchase of shares of
its Common Stock by the shareholder receiving such dividends) or purchase,
retire or otherwise acquire for a consideration any shares of its Common Stock,
except out of the earned surplus or net profits of the Company determined in
accordance with generally accepted principles of accounting and lawfully
available for that purpose; provided, however, that for the purpose of such
covenant only, in computing the amount of such earned surplus or net profits,
there shall have been, subsequent to September 1, 1939, and up to the date as
of which the computation is made, charged to operating expenses for maintenance
or as a reserve for depreciation or retirements, the aggregate amounts required
to be expended or deposited with the First Mortgage Trustee under the
provisions described under the subcaption "Maintenance and Renewal" for such
period. The First Mortgage does not require that any notice be given to
bondholders in connection with the foregoing restrictions on dividends, unless
and until an event of default under the First Mortgage occurs by reason of the
Company's violation of such dividend restriction.
Concerning the First Mortgage Trustee. The First Mortgage provides that the
holders of a majority in principal amount of the outstanding bonds shall have
the right to require the First Mortgage Trustee to take action on behalf of the
bondholders, but under certain circumstances the First Mortgage Trustee may
decline to follow such directions or to exercise certain of its powers. Prior
to taking such action, the First Mortgage Trustee is entitled to indemnity
satisfactory to it against costs, expenses and liabilities that may be incurred
in the course of such action. Such right to indemnification does not impair the
absolute right of any bondholder to enforce payment of the principal of and
interest on his bonds when due.
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Defaults, Notices and Certificates. The First Mortgage provides generally
that failure for 30 days to pay interest on any bond, failure to pay the
principal of any bond, whether at maturity or upon redemption or declaration,
failure to pay principal or interest on any prior lien obligations, failure for
60 days after notice to perform or observe other covenants of the First
Mortgage, default under any mortgage or other instrument securing any prior
lien obligations and the occurrence of insolvency, bankruptcy or similar
proceedings constitute events of default. The First Mortgage Trustee is
required to give notice to the bondholders of the occurrence of any event which
constitutes, or which, with the giving of notice or the lapse of time or both,
would constitute, an event of default, except that the First Mortgage Trustee
may withhold such notice if the First Mortgage Trustee determines that to do so
is in the interests of the bondholders unless such event relates to the payment
of principal of or interest on or any sinking fund obligation for the benefit
of any of the bonds. Upon the occurrence of an event of default, the First
Mortgage Trustee may, and upon written request of the holders of a majority in
principal amount of all bonds then outstanding under the First Mortgage shall,
declare the payment of all bonds outstanding under the First Mortgage due and
payable, enforce the lien of the First Mortgage by foreclosure or exercise such
other remedies as are provided in the First Mortgage.
Compliance with certain provisions of the First Mortgage is required to be
evidenced by various written statements or certificates filed with the First
Mortgage Trustee, and various certificates and other papers are required to be
filed with the First Mortgage Trustee annually and upon the happening of
various events. However, no periodic evidence is required to be furnished as to
the absence of events of default or compliance with the terms of the First
Mortgage.
DESCRIPTION OF THE NOTE INDENTURE AND THE SECURED NOTES.
General. The Secured Notes will be issuable under the Note Indenture and
secured by the Collateral Bonds to be issued by the Company and pledged to the
Note Trustee. The Note Indenture does not limit the aggregate principal amount
of Secured Notes which may be issued thereunder, except that no Secured Notes
shall be issued if, after giving effect to such issuance, the aggregate
principal amount of the outstanding Secured Notes would exceed the aggregate
Stated Principal Amount (as defined below) of the outstanding Collateral Bonds.
Subject to the foregoing limitation, Secured Notes may be issued under the Note
Indenture from time to time in one or more series. Each series of Secured Notes
shall be denominated and bear interest in United States currency and shall
mature on a date not less than 9 months nor more than 30 years after the date
of issuance (but in no event shall any Secured Note mature after August 15,
2027, the date of maturity of the Collateral Bonds).
Security; the Collateral Bonds. The payment of the principal of and premium
(if any) and interest on the Secured Notes will be secured by a pledge to the
Note Trustee of the Collateral Bonds. The Collateral Bonds will be issued under
and secured by the First Mortgage, equally and ratably with all other bonds now
or hereafter issued and outstanding thereunder. The aggregate principal amount
of the Collateral Bonds will be limited to the lesser of (a) the dollar amount
set forth therein (the "Stated Principal Amount") or (b) the aggregate
principal amount of the Secured Notes. The interest payable on the Collateral
Bonds shall be equal to the aggregate interest payable with respect to the
Secured Notes, but such interest shall not exceed an amount computed using a
fixed interest rate of 25% per annum. Both principal and interest with respect
to the Collateral Bonds will be payable to the Note Trustee. Interest will be
payable on the Collateral Bonds semi-annually on February 15 and August 15 of
each year during which Secured Notes are Outstanding. Principal and interest
payments with respect to the Secured Notes shall be deemed to be payments of
the principal and interest due with respect to the Collateral Bonds. For a
description of the First Mortgage, the bonds issued thereunder and the rights
of the holders of such bonds, see "Description of Debt Securities--Description
of the First Mortgage and the Bonds" herein.
The Collateral Bonds will not be entitled to the benefit of any sinking fund.
The Collateral Bonds are subject to redemption upon the demand of the Note
Trustee on the occurrence of an Event of Default under the Note Indenture and
the resulting acceleration of the maturity of the Secured
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Notes. The redemption price shall be equal to 100% of the aggregate principal
amount of the Outstanding Secured Notes of all series plus accrued interest
thereon to the date fixed for redemption. At any time after any such
acceleration of the Secured Notes, but before a judgment or decree for the
immediate payment of the Secured Notes has been obtained, and so long as the
Collateral Bonds have not been accelerated, the Holders of at least a majority
in principal amount of the Outstanding Secured Notes may, under certain
circumstances, rescind the acceleration of the Secured Notes and the demand for
redemption of the Collateral Bonds.
Exchange and Transfer. Secured Notes may be presented for exchange and
registered Secured Notes may be presented for registration of transfer at the
offices and subject to the restrictions set forth therein and in the applicable
Prospectus Supplement without service charge, but upon payment of any taxes or
other governmental charges due in connection therewith, subject to any
applicable limitations contained in the Note Indenture. Secured Notes in bearer
form and the coupons appertaining thereto, if any, will be transferable by
delivery.
Payment. Unless otherwise indicated in the applicable Prospectus Supplement,
payment of the principal of and the premium and interest, if any, on all
Secured Notes (other than a Registered Global Security) in registered form will
be made at the office or agency of the Note Trustee in the Borough of
Manhattan, The City of New York or in Chicago, Illinois, except that, at the
option of the Company, payment of any interest may be made (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the Note Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Note Register. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of any interest due
on Secured Notes in registered form will be made to the Persons in whose name
such Secured Notes are registered at the close of business on the Record Date
for such interest payments.
Events of Default. The occurrence of any of the following events with respect
to the Secured Notes of any series will constitute an "Event of Default" with
respect to the Secured Notes of such series: (a) default for 30 days in the
payment of any interest on any of the Secured Notes of such series; (b) default
in the payment of any of the principal of or the premium, if any, on any of the
Secured Notes of such series, whether at maturity, upon redemption, by
declaration or otherwise; (c) default in the deposit of any sinking fund
payment in respect of any Secured Notes of such series; (d) default for 60 days
by the Company in the observance or performance of any other covenant or
agreement contained in the Note Indenture relating to the Secured Notes of such
series after written notice thereof as provided in the Note Indenture; (e) the
occurrence of an event of default under the First Mortgage and the First
Mortgage Trustee, the Company or the Holders of at least 25% of in aggregate
principal amount of the outstanding Secured Notes of such series shall have
given written notice thereof to the Note Trustee; or (f) certain events of
bankruptcy, insolvency or reorganization relating to the Company. Additional
Events of Default may be prescribed for the benefit of the Holders of a
particular series of Secured Notes and will be described in the Prospectus
Supplement relating thereto.
If an Event of Default due to a default in the payment of the principal of or
the premium or interest, if any, on any series of Secured Notes shall have
occurred and be continuing, either the Note Trustee or the Holders of not less
than 25% in aggregate principal amount of the Secured Notes of such series then
Outstanding may declare the principal of all Secured Notes of such series and
the interest, if any, accrued thereon to be due and payable immediately. If an
Event of Default due to a default in the observance or performance of any other
covenant or agreement of the Company contained in the Note Indenture and
applicable to the Secured Notes of one or more (but less than all) series then
Outstanding shall have occurred and be continuing, either the Note Trustee or
the Holders of not less than 25% in aggregate principal amount of the Secured
Notes of the affected series then Outstanding (voting as one class) may declare
the principal of all Secured Notes of each such affected series and the
interest, if any, accrued thereon to be due and payable immediately. If an
Event of Default due to a default in the observance or performance of any other
covenant or agreement of the Company contained in the Note Indenture applicable
to all Secured Notes then Outstanding or due to certain events of bankruptcy,
insolvency or reorganization relating to the Company
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shall have occurred and be continuing, either the Note Trustee or the Holders
of not less than 25% in aggregate principal amount of all Secured Notes then
Outstanding (voting as one class) may declare the principal of all Secured
Notes and the interest, if any, accrued thereon to be due and payable
immediately.
Upon any such acceleration of the Secured Notes, the Note Trustee is
empowered to cause the mandatory redemption of the Collateral Bonds. At any
time after an acceleration of the Secured Notes has been declared, but before a
judgment or decree for the immediate payment of the principal amount of the
Secured Notes has been obtained and so long as the Collateral Bonds have not
been accelerated, the holders of a majority in principal amount of the
outstanding Secured Notes may, under certain circumstances, rescind and annul
such acceleration and its consequences.
Upon certain conditions, any such declarations may be rescinded and annulled
if all Events of Default, other than the nonpayment of accelerated principal,
with respect to the Secured Notes of all such affected series then Outstanding
shall have been cured or waived as provided in the Note Indenture by the
Holders of a majority in aggregate principal amount of the Secured Notes of the
affected series then Outstanding (voting as one class, except in the case of
Events of Default described in clauses (a), (b) and (c) above as to which each
series so affected will vote as a separate class). See "Modification of the
Note Indenture" below. Reference is made to the Prospectus Supplement relating
to any series of Original Issue Discount Securities for the particular
provisions relating to the acceleration of a portion of the principal amount
thereof upon the occurrence and continuance of an Event of Default with respect
thereto.
The Note Indenture provides that, subject to the duty of the Trustee to act
with the requisite standard of care in case a default with respect to a series
of Secured Notes shall have occurred and be continuing, the Note Trustee will
be under no obligation to exercise any of its rights or powers under the Note
Indenture at the request, order or direction of the Holders of the Secured
Notes, unless such Holders shall have offered to the Note Trustee reasonable
indemnity. Subject to such provisions for indemnity and certain other
limitations contained in the Note Indenture, the Holders of a majority in
aggregate principal amount of the Secured Notes of each affected series then
Outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Note Trustee, or
exercising any trust or power conferred on the Note Trustee, with respect to
the Secured Notes of such affected series.
The Note Indenture provides that no Holder of Secured Notes may institute any
action against the Company under the Note Indenture (except actions for payment
of overdue principal, premium or interest) unless such Holder previously shall
have given to the Note Trustee written notice of default and continuance
thereof and unless the Holders of not less than 25% in aggregate principal
amount of the Secured Notes of the affected series then Outstanding (voting as
one class) shall have requested the Note Trustee to institute such action and
shall have offered the Note Trustee reasonable indemnity, the Note Trustee
shall not have instituted such action within 60 days of such request and the
Note Trustee shall not have received direction inconsistent with such request
by the Holders of a majority in aggregate principal amount of the Secured Notes
of the affected series then Outstanding (voting as one class).
The Note Indenture requires the Company to furnish to the Note Trustee
annually a statement as to the Company's compliance with all conditions and
covenants under the Note Indenture. The Note Indenture provides that the Note
Trustee may withhold notice to the Holders of the Secured Notes of any series
of any default affecting such series (except defaults as to payment of
principal, premium or interest on the Secured Notes of such series) if it
considers such withholding to be in the interests of the Holders of the Secured
Notes of such series.
Consolidation, Merger or Sale of Assets. The Note Indenture provides that the
Company may consolidate with or merge into, or sell, lease or convey its
property as an entirety or substantially as an entirety to, any other
corporation if (a) such corporation assumes the obligations of the Company
under the Secured Notes and the Note Indenture and is organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia, (b) immediately after such consolidation, merger, sale,
lease or
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conveyance, such other corporation shall have assumed and become liable for all
of the obligations of the Company under and with respect to the First Mortgage
and the Collateral Bonds and the Note Indenture and (c) no such consolidation,
merger or sale shall have impaired the lien of the First Mortgage or any of the
rights and powers of the holder of the Collateral Bonds. The term "impaired" is
not defined in the First Mortgage, but the Company believes that an impairment
would occur thereunder if any such transaction had the effect of releasing any
property from the first mortgage lien created by the First Mortgage or
subjecting any property subject to such lien to any prior lien.
Modification of the Note Indenture. The Note Indenture permits the Company
and the Note Trustee to enter into supplemental indentures thereto without the
consent of the Holders of the Secured Notes to: (a) additionally secure the
Secured Notes of one or more series, (b) evidence the assumption by a successor
corporation of the obligations of the Company under the Note Indenture and the
Secured Notes then Outstanding, (c) add covenants for the protection of the
Holders of the Secured Notes, (d) cure any ambiguity or correct any
inconsistency in the Note Indenture, (e) establish the form and terms of the
Secured Notes of any series and (f) evidence the acceptance of appointment by a
successor Note Trustee.
The Note Indenture also permits the Company and the Note Trustee, with the
consent of the Holders of not less than a majority in aggregate principal
amount of the Secured Notes of each series then Outstanding and affected, to
add any provisions to, or change in any manner or eliminate any of the
provisions of, the Note Indenture or modify in any manner the rights of the
Holders of the Secured Notes of each such affected series; provided, however,
that the Company and the Note Trustee may not, without the consent of the
Holder of each Secured Note then Outstanding and affected thereby: (a) extend
the time of payment of the principal (or any installment) of any Secured Note,
or reduce the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon, or reduce any amount payable on the redemption
thereof, or impair the security interest of the Note Trustee in the Collateral
Bonds, or reduce the amount payable on any Original Issue Discount Notes upon
acceleration or provable in bankruptcy, or impair the right to institute suit
for the enforcement of any payment on any Secured Note when due; or (b) reduce
the percentage in principal amount of the Secured Notes of the affected series,
the consent of whose Holders is required for any such modification or for any
waiver provided for in the Note Indenture.
Prior to the acceleration of the maturity of any Secured Notes, the Holders
of a majority in aggregate principal amount of the Secured Notes of all series
at the time Outstanding with respect to which a default or an Event of Default
shall have occurred and be continuing (voting as one class) may on behalf of
the Holders of all such affected Secured Notes waive any past default or Event
of Default and its consequences, except a default or an Event of Default in
respect of a covenant or provision of the Note Indenture or of any Secured Note
which cannot be modified or amended without the consent of the Holder of each
Secured Note affected.
Defeasance and Discharge. The Note Indenture provides that, at the option of
the Company: (a) the Company will be discharged from any and all obligations in
respect of the Secured Notes of a particular series then Outstanding (except
for certain obligations to register the transfer of or exchange the Secured
Notes of such series, to replace stolen, lost or mutilated Secured Notes of
such series, to maintain paying agencies and to maintain the trust described
below), or (b) the Company need not comply with and shall have no liability in
respect of certain restrictive covenants of the Note Indenture (including those
described under "Consolidation, Merger or Sale of Assets"), and the failure to
comply with such covenants shall not be an Event of Default, in each case if
the Company irrevocably deposits in trust with the Note Trustee money, and/or
securities backed by the full faith and credit of the United States which,
through the payment of the principal thereof and the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of (and premium, if any) and interest on the Secured Notes of
such series on the stated maturity of such Secured Notes and any mandatory
sinking fund or analogous payment on the dates on which such payments are due
and payable in accordance with the terms thereof. To exercise such option, the
Company is required, among other things, to deliver to the Note Trustee an
opinion of independent counsel to the effect that the exercise of such option
would not cause the Holders of the Secured Notes of such series to recognize
income, gain or loss for United States Federal income tax purposes as a
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result of such defeasance, and such Holders will be subject to United States
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred, and, in
the case of a discharge as described in clause (a) of the preceding sentence,
such opinion is to be accompanied by a private letter ruling to the same effect
received from the Internal Revenue Service, a revenue ruling to such effect
pertaining to a comparable form of transaction published by the Internal
Revenue Service or appropriate evidence that since the date of the Note
Indenture there has been a change in the applicable Federal income tax law. In
addition, such option may not be exercised by the Company if (i) any Event of
Default, or event which with notice or lapse of time or both, would become an
Event of Default, has occurred or is continuing, (ii) any such deposit of money
and/or securities would result in a breach or violation of, or constitute a
default under, the Note Indenture or any other agreement to which the Company
is a party or by which it is bound, or (iii) any such deposit would cause any
Secured Note or the affected series then listed on any national securities
exchange to be delisted.
In the event the Company exercises its option to effect a covenant defeasance
with respect to the Secured Notes of any series as described in the preceding
paragraph and the Secured Notes of such series are thereafter declared due and
payable because of the occurrence of any Event of Default other than an Event
of Default caused by failing to comply with the covenants which are defeased,
and the amount of money and securities on deposit with the Trustee would be
insufficient to pay amounts due on the Secured Notes of such series at the time
of their accelerated maturity, the Company would remain liable for such
amounts.
The Company may also obtain a discharge of the Note Indenture with respect to
all Secured Notes then Outstanding (except for the rights of Noteholders in the
property deposited and to receive payments of principal and interest when due,
the rights of the Note Trustee and certain obligations to register the transfer
of or exchange such Secured Notes, to replace stolen, lost or mutilated Secured
Notes, to maintain paying agencies and to maintain the trust described below)
by irrevocably depositing in trust with the Note Trustee money, and/or
securities backed by the full faith and credit of the United States which,
through the payment of the principal thereof or the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of (and premium, if any) and interest on the Secured Notes on
the stated maturities thereof and any mandatory sinking fund or analogous
payments on the dates on which such payments are due and payable, provided that
such Secured Notes are by their terms due and payable, or are to be called for
redemption, within one year.
CONCERNING THE NOTE TRUSTEE.
The First National Bank of Chicago, the trustee under the Note Indenture, is
one of a number of banks with which the Company, its parent company and their
respective subsidiaries maintain ordinary banking relationships, including, in
certain cases, credit facilities.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities being offered hereby in four ways:
(i) directly to purchasers, (ii) through agents, (iii) through underwriters and
(iv) through dealers.
Offers to purchase Debt Securities may be solicited by agents designated by
the Company from time to time. Any such agent, who may be deemed to be an
underwriter as that term is defined in the Securities Act, involved in the
offer or sale of the Debt Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent will be set forth, in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
If underwriters are utilized in the sale, the Company will execute an
underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction
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will be set forth in the Prospectus Supplement, which will be used by the
underwriters to make resales of the Debt Securities in respect of which this
Prospectus is delivered to the public. Any underwriters will acquire Debt
Securities for their own account and may resell such Debt Securities from time
to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices determined at the time of
sale. Debt Securities may be offered to the public either through underwriting
syndicates represented by managing underwriters, or directly by the managing
underwriters. Lehman Brothers (a division of Shearson Lehman Brothers Inc.),
Merrill Lynch & Co, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc may act as managing
underwriter with respect to an offering of Debt Securities through
underwriters. Only underwriters named in the Prospectus Supplement are deemed
to be underwriters in connection with the Debt Securities offered thereby, and
any of the above-named firms not named in the Prospectus Supplement will not be
parties to the underwriting agreement relating to such Debt Securities, will
not be purchasing any such Debt Securities from the Company in connection with
such offering, and will have no direct or indirect participation in the
underwriting of such Debt Securities, although they may participate in the
distribution of such Debt Securities under circumstances where they may be
entitled to a dealer's commission. If any underwriters are utilized in the sale
of the Debt Securities, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of Debt Securities will be
obligated to purchase all such Debt Securities, if any are purchased.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, the Company will sell such Debt Securities
to the dealer, as principal. The dealer may then resell such Debt Securities to
the public at varying prices to be determined by such dealer at the time of
resale.
Agents, underwriters and dealers may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities (including liabilities under the Securities Act, the Exchange Act
or other federal or state statutory law or regulation, at common law or
otherwise) or to contribution with respect to payments which the agents,
underwriters, or dealers may be required to make in respect thereof. Agents,
underwriters and dealers may be customers of, engage in transactions with, or
perform services for the Company in the ordinary course of business.
Offers to purchase Debt Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional
investors or others. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers by certain institutions to purchase
Debt Securities from the Company at the public offering price set forth in the
Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date stated in the Prospectus
Supplement. Each Contract will be for an amount not less than, and unless the
Company otherwise agrees the aggregate principal amount of Debt Securities sold
pursuant to Contracts shall be not less nor more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but shall in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
that the purchase by an institution of the Debt Securities covered by its
Contract shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject. A
commission indicated in the Prospectus Supplement will be paid to underwriters
and agents soliciting purchases of Debt Securities pursuant to Contracts
accepted by the Company.
The place and time of delivery for the Debt Securities in respect of which
this Prospectus is delivered are set forth in the Prospectus Supplement.
15
<PAGE>
LEGAL MATTERS
The legality of the Debt Securities offered hereby will be passed upon for
the Company by Frank T. Lewis, Associate General Counsel of the Company, and
for any underwriters, dealers or agents by Sidley & Austin, Chicago, Illinois.
EXPERTS
The financial statements and schedules of the Company incorporated by
reference in this Prospectus and elsewhere in the Registration Statement to the
extent and for the periods indicated in their reports have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. Reference is made to said report which includes explanatory paragraphs
that describe the litigation and rate appeals described in Notes 3 and 4 to the
financial statements, respectively.
16
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HERETO OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Summary......................................................... S-2
Selected Financial Information............................................. S-3
Recent Developments........................................................ S-4
Use of Proceeds............................................................ S-6
Description of Bonds....................................................... S-7
Underwriting............................................................... S-10
Legal Opinions............................................................. S-10
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information....................................................... 2
Incorporation of Certain Documents
by Reference............................................................... 2
The Company................................................................. 3
Selected Financial Information.............................................. 4
Recent Developments......................................................... 4
Use of Proceeds............................................................. 5
Description of Debt Securities.............................................. 5
Plan of Distribution........................................................ 14
Legal Matters............................................................... 16
Experts..................................................................... 16
</TABLE>
$50,000,000
PSI ENERGY, INC.
FIRST MORTGAGE BONDS,
SERIES AAA, 7 1/8%, DUE FEBRUARY 1, 2024
LOGO
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SALOMON BROTHERS INC
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PROSPECTUS SUPPLEMENT
DATED FEBRUARY 16, 1994
